The Customer Institute is a website designed to provide answers to the most important questions for every business; namely, how is my customer asset doing? Is it getting better or worse? How can I improve it.
This site will be the repository of customer data gathered from sources worldwide.

Wednesday, March 11, 2015

Share of wallet may be the best loyalty yardstick

Tim Keiningham, global chief strategy officer for Ipsos
Loyalty has developed an interesting statistics regarding loyalty. Many companies rely on the NPS measurement to
define their customer loyalty. However, Mr. Cunningham has some statistics that
seem to provide some serious questions about the NPS measurement of loyalty. In
effect, a report for a client with customers right in a five as loyal with the
NPS criterion. However, more than 90% of the time the same customers had an NPS
loyal score for another brand.

There is an interesting new book titled the wallet. How
location rule which was co-written by Prof. Lerzan Aksoy and Mr. Luke Williams
also of Ipsos. In this new book the
authors give an example regarding a retail grocery chain. The authors note that while 53% of the
customers gave high marks when asked would they would promote the store, only
43% listed the store as their primary shopping location. The authors point out
that 57% of the customers with a solid satisfaction score still prefer
competitors. It was further pointed out that customers often chose to shop
elsewhere due to lower prices and one of the other stores had a location that
was more convenient.

Rather than using the NPS score estimator of loyalty. The
authors offer three performance indicators that may provide a better measure of
loyalty. The authors suggest the following three metrics:

1. 1. Measure the percentage of customers that list
them as their first choice

2. 2 The average number of brands used by the
customer

3. 3. The share of the customer’s wallet captured by
the company.

Dr. Keiningham references another study of a financial
services firm that found 90% of the customers who would indicate they would
promote a brand might not list it as their primary brand in the field.

The bottom line is that customer loyalty identified as a 9
or 10 on the NPS scale may not accurately reflect loyalty according to the
following definition. Many companies
believe loyalty means that their company will be considered first when an
engagement opportunity occurs (the customer will spend his money with the
company because they are loyal). Based
on these statistics, that may not be true.

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